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Credit control: A Guide for Start-ups
What should my credit terms be?
To stay in control of your credit, you should set out clear, unambiguous credit terms at the outset. Get the customer to read and sign a copy of the terms before you make a sale. Credit terms should cover:
- Credit limits. See below for more on this.
- Maximum credit periods. Set out the exact number of days after which payment is due following the invoice (many companies opt for a 28-day limit). Another option is to require payment on a fixed date – like the 15th of each month – which can keep your cashflow more predictable.
- Discounts for prompt payment. Make sure you monitor whether customers actually pay early when they take a discount.
- Early settlement rebates. These give the customer a proportionate rebate on the interest they would normally pay if they settle the invoice early.
- Penalties for late payments. The law now allows you to claim compensation and interest on unpaid invoices past a certain period, at 8% above the Bank of England base rate. More details can be found here. You should inform customers if you intend to impose penalties for late payment.